KEMET CORP - FORM 8-K - EX-99.1 - EARNINGS RELEASE - January 30, 2014

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Exhibit 99.1
 
News Release
 
 
FOR IMMEDIATE RELEASE
 
Contact:
William M. Lowe, Jr.
Richard J. Vatinelle
 
Executive Vice President and
Director of Finance and
 
Chief Financial Officer
Investor Relations
 
williamlowe@kemet.com
richardvatinelle@kemet.com
 
864-963-6484
954-766-2800
 
KEMET REPORTS THIRD QUARTER FISCAL YEAR 2014 RESULTS
 
Financial Highlights:
 
•Revenue of $207.3 million increased 4.9% compared to $197.7 million for the same quarter last year
•Adjusted Operating income increased $5.7 million over the prior quarter
•Adjusted Gross Margin up 3.1% to 18.5% over the prior quarter
 
Greenville, South Carolina (January 30, 2014) - KEMET Corporation (the “Company”) (NYSE: KEM), a leading global supplier of electronic components, today reported preliminary results for the third fiscal quarter ended December 31, 2013. Results included in this earnings release have been adjusted to reflect discontinued operations as the Film and Electrolytic Business group has initiated a plan to dispose of its machinery division.
 
Net sales of $207.3 million for the quarter ended December 31, 2013 decreased 0.5% from net sales of $208.4 million for the prior quarter ended September 30, 2013, and increased 4.9% compared to net sales of $197.7 million for the quarter ended December 31, 2012.

The U.S. GAAP net loss from continuing operations was $4.7 million, or $0.11 loss per basic and diluted share for the quarter ended December 31, 2013, compared to a U.S. GAAP net loss from continuing operations of $11.9 million or $0.26 loss per basic and diluted share for the prior quarter ended September 30, 2013. For the quarter ended December 31, 2012 the U.S. GAAP net loss from continuing operations was $12.6 million or $0.28 loss per basic and diluted share.
 
Non-U.S. GAAP Adjusted net income improved to $0.9 million or $0.02 per basic and diluted share for the quarter ended December 31, 2013, compared to a non-U.S. GAAP Adjusted net loss of $4.6 million or $0.10 loss per basic and diluted share for the prior quarter ended September 30, 2013.  For the quarter ended December 31, 2012 the non-U.S. GAAP Adjusted net loss was $0.7 million or $0.01 loss per basic and diluted share.
 
“Revenue, excluding discontinued operations, was essentially flat compared to the prior quarter as we forecasted and it is gratifying to see our cost reduction efforts reflected in our financial results with positive non-GAAP earnings per share in this challenging environment,” stated Per Loof, KEMET’s Chief Executive Officer. “We have seen steady improvement in our operating margins and we will continue to stay focused on our overall cost structure to leverage our position as the economic rebound occurs in our industry,” continued Loof.

 
The net loss for the quarters ended December 31, 2013 and 2012 include various items affecting comparability as denoted in the U.S. GAAP to Non-U.S. GAAP reconciliation table included hereafter.






About KEMET
 
The Company’s common stock is listed on the NYSE under the ticker symbol “KEM” (NYSE: KEM).  At the Investor Relations section of our web site at http://www.kemet.com/IR, users may subscribe to KEMET news releases and find additional information about our Company.  KEMET applies world class service and quality to deliver industry leading, high performance capacitance solutions to its customers around the world and offers the world’s most complete line of surface mount and through hole capacitor technologies across tantalum, ceramic, film, aluminum, electrolytic, and paper dielectrics. Additional information about KEMET can be found at http://www.kemet.com.

QUIET PERIOD
 
Beginning April 1, 2014, we will observe a quiet period during which the information provided in this news release and quarterly report on Form 10-Q will no longer constitute our current expectations. During the quiet period, this information should be considered to be historical, applying prior to the quiet period only and not subject to update by management. The quiet period will extend until the day when our next quarterly earnings release is published.
 
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
 
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about the Company’s financial condition and results of operations that are based on management’s current expectations, estimates and projections about the markets, in which the Company operates, as well as management’s beliefs and assumptions. Words such as “expects,” “anticipates,” “believes,” “estimates,” variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s judgment only as of the date hereof. The Company undertakes no obligation to update publicly any of these forward-looking statements to reflect new information, future events or otherwise.
 
Factors that may cause actual outcome and results to differ materially from those expressed in, or implied by, these forward-looking statements include, but are not necessarily limited to the following: (i) adverse economic conditions could impact our ability to realize operating plans if the demand for our products declines, and such conditions could adversely affect our liquidity and ability to continue to operate; (ii) continued net losses could impact our ability to realize current operating plans and could materially adversely affect our liquidity and our ability to continue to operate; (iii) adverse economic conditions could cause the write down of long-lived assets or goodwill; (iv) an increase in the cost or a decrease in the availability of our principal or single-sourced purchased materials; (v) changes in the competitive environment; (vi) uncertainty of the timing of customer product qualifications in heavily regulated industries; (vii) economic, political, or regulatory changes in the countries in which we operate; (viii) difficulties, delays or unexpected costs in completing the restructuring plan; (ix) equity method investments expose us to a variety of risks; (x) acquisitions and other strategic transactions expose us to a variety of risks; (xi) inability to attract, train and retain effective employees and management; (xii) inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xiii) exposure to claims alleging product defects; (xiv) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xv) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xvi) volatility of financial and credit markets affecting our access to capital; (xvii) the need to reduce the total costs of our products to remain competitive; (xviii) potential limitation on the use of net operating losses to offset possible future taxable income; (xix) restrictions in our debt agreements that limit our flexibility in operating our business; and (xx) additional exercise of the warrant by K Equity which could potentially result in the existence of a significant stockholder who could seek to influence our corporate decisions.



2


KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
 
Quarters Ended December 31,
 
Nine Month Periods Ended December 31,
 
2013
 
2012
 
2013
 
2012
Net sales
$
207,339

 
$
197,698

 
$
617,845

 
$
624,363

Operating costs and expenses:
 

 
 

 
 

 
 

Cost of sales
169,677

 
162,733

 
530,722

 
525,653

Selling, general and administrative expenses
22,431

 
25,313

 
70,826

 
77,119

Research and development
6,027

 
6,290

 
17,703

 
20,183

Restructuring charges
2,194

 
3,886

 
8,169

 
13,672

Goodwill impairment
—

 
—

 
—

 
1,092

Write down of long-lived assets
3,358

 
3,084

 
3,358

 
7,318

Net (gain) loss on sales and disposals of assets
29

 
(196
)
 
71

 
(123
)
Total operating costs and expenses
203,716

 
201,110

 
630,849

 
644,914

Operating income (loss)
3,623

 
(3,412
)
 
(13,004
)
 
(20,551
)
Other (income) expense:
 

 
 

 
 

 
 

Interest income
(7
)
 
(54
)
 
(182
)
 
(111
)
Interest expense
10,349

 
10,247

 
30,291

 
30,840

Other (income) expense, net
(1,349
)
 
(1,641
)
 
(49
)
 
(1,126
)
Loss from continuing operations before income taxes and equity income (loss) from NEC TOKIN
(5,370
)
 
(11,964
)
 
(43,064
)
 
(50,154
)
Income tax expense
1,033

 
611

 
4,293

 
4,004

Loss from continuing operations before equity income (loss) from NEC TOKIN
(6,403
)
 
(12,575
)
 
(47,357
)
 
(54,158
)
Equity income (loss) from NEC TOKIN
1,657

 
—

 
(2,962
)
 
—

Loss from continuing operations
(4,746
)

(12,575
)

(50,319
)

(54,158
)
Loss from discontinued operations
(1,076
)
 
(1,682
)
 
(3,737
)
 
(2,773
)
Net loss
$
(5,822
)
 
$
(14,257
)
 
$
(54,056
)
 
$
(56,931
)
Net loss per basic share:
 

 
 

 
 

 
 

Loss from continuing operations
$
(0.11
)
 
$
(0.28
)
 
$
(1.12
)
 
$
(1.21
)
Loss from discontinued operations
$
(0.02
)
 
$
(0.04
)
 
$
(0.08
)
 
$
(0.06
)
Net loss
$
(0.13
)
 
$
(0.32
)
 
$
(1.20
)
 
$
(1.27
)
 
 
 
 
 
 
 
 
Net loss per diluted share:
 

 
 

 
 

 
 

Loss from continuing operations
$
(0.11
)
 
$
(0.28
)
 
$
(1.12
)
 
$
(1.21
)
Loss from discontinued operations
$
(0.02
)
 
$
(0.04
)
 
$
(0.08
)
 
$
(0.06
)
Net loss
$
(0.13
)
 
$
(0.32
)
 
$
(1.20
)
 
$
(1.27
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 

 
 

 
 

 
 

Basic
45,120

 
44,918

 
45,078

 
44,879

Diluted
45,120

 
44,918

 
45,078

 
44,879



3


KEMET CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
 
 
December 31, 2013
 
March 31, 2013
 
(Unaudited)
 
 
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
55,594

 
$
95,978

Accounts receivable, net
93,542

 
93,774

Inventories, net
200,853

 
198,888

Prepaid expenses and other
37,732

 
41,100

Deferred income taxes
5,752

 
4,167

Current assets of discontinued operations
10,293

 
9,517

Total current assets
403,766

 
443,424

Property and equipment
303,741

 
303,942

Goodwill
35,584

 
35,584

Intangible assets, net
37,722

 
38,646

Investment in NEC TOKIN
49,713

 
52,738

Restricted cash
14,028

 
17,397

Deferred income taxes
8,400

 
7,994

Other assets
8,885

 
10,150

Noncurrent assets of discontinued operations
486

 
1,716

Total assets
$
862,325

 
$
911,591

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Current portion of long-term debt
$
27,672

 
$
10,793

Accounts payable
71,598

 
72,002

Accrued expenses
75,822

 
91,950

Income taxes payable and deferred income taxes
3,660

 
1,074

Current liabilities of discontinued operations
5,862

 
5,661

Total current liabilities
184,614

 
181,480

Long-term debt, less current portion
374,223

 
372,707

Other non-current obligations
54,900

 
69,022

Deferred income taxes
8,033

 
8,542

Noncurrent liabilities of discontinued operations
2,728

 
2,924

Stockholders’ equity:
 

 
 

Preferred stock, par value $0.01, authorized 10,000 shares, none issued
—

 
—

Common stock, par value $0.01, authorized 175,000 shares, issued 46,508 shares at December 31, 2013 and March 31, 2013
465

 
465

Additional paid-in capital
466,316

 
467,096

Retained deficit
(217,291
)
 
(163,235
)
Accumulated other comprehensive income
20,332

 
7,694

Treasury stock, at cost (1,384 and 1,519 shares at December 31, 2013 and March 31, 2013, respectively)
(31,995
)
 
(35,104
)
Total stockholders’ equity
237,827

 
276,916

Total liabilities and stockholders’ equity
$
862,325

 
$
911,591



4


KEMET CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
 
Nine Month Periods Ended December 31,
 
2013
 
2012
Net loss from continuing operations
$
(50,319
)
 
$
(54,158
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
37,352

 
33,389

Equity loss from NEC TOKIN
2,962

 
—

Amortization of debt discount and debt issuance costs
2,817

 
3,046

Stock-based compensation expense
2,288

 
3,523

Long-term receivable write down
1,484

 
—

Change in value of NEC TOKIN options
(1,334
)
 
—

Net (gain) loss on sales and disposals of assets
71

 
(123
)
Pension and other post-retirement benefits
24

 
232

Write down of long-lived assets
3,358

 
7,318

Net curtailment and settlement gain on benefit plans
—

 
(1,088
)
Goodwill impairment
—

 
1,092

Change in deferred income taxes
(2,496
)
 
1,517

Change in operating assets
8,579

 
(13,632
)
Change in operating liabilities
(28,296
)
 
(25,156
)
Other
474

 
(137
)
Net cash used in operating activities
(23,036
)
 
(44,177
)
Investing activities:
 

 
 

Capital expenditures
(24,993
)
 
(38,349
)
Change in restricted cash
3,532

 
(24,000
)
Net cash used in investing activities
(21,461
)
 
(62,349
)
Financing activities:
 

 
 

Proceeds from revolving line of credit
21,000

 
—

Proceeds from issuance of debt
—

 
39,825

Deferred acquisition payments
(11,703
)
 
(6,617
)
Payments of long-term debt
(2,858
)
 
(1,901
)
Proceeds from exercise of stock options
86

 
58

Debt issuance costs
—

 
(275
)
Net cash provided by financing activities
6,525

 
31,090

Net decrease in cash and cash equivalents
(37,972
)
 
(75,436
)
Effect of foreign currency fluctuations on cash
864

 
(81
)
Net cash used in operating activities of discontinued operations
(3,276
)
 
2,555

Cash and cash equivalents at beginning of fiscal period
95,978

 
210,521

Cash and cash equivalents at end of fiscal period
$
55,594

 
$
137,559



5


Non-U.S. GAAP Financial Measures
 
In this news release, the Company makes reference to certain Non-U.S. GAAP financial measures, including "Adjusted gross margin", “Adjusted net loss”, “Adjusted net loss per share” and “Adjusted EBITDA”.  Management believes that investors may find it useful to review the Company’s financial results as adjusted to exclude items as determined by management.
 
Adjusted gross margin
 
Adjusted gross margin represents net sales less cost of sales excluding adjustments which are outlined in the quantitative reconciliation provided below.  Management uses Adjusted gross margin to facilitate our analysis and understanding of our business operations and believes that Adjusted gross margin is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company.  Adjusted gross margin should not be considered as an alternative to gross margin or any other performance measure derived in accordance with U.S. GAAP.
 
The following table provides reconciliation from U.S. GAAP Gross margin to Non-U.S. GAAP Adjusted gross margin (amounts in thousands):
 
 
Quarters Ended
 
December 31,
2013
 
September 30, 
2013
 
(Unaudited)
Net sales
$
207,339

 
$
208,449

Gross margin
37,662

 
30,917

Non-U.S. GAAP-adjustments:
 

 
 

Stock-based compensation
265

 
213

Plant start-up costs
485

 
1,050

Adjusted gross margin
$
38,412

 
$
32,180

 
18.5
%
 
15.4
%
 
Adjusted Operating Income

Adjusted operating loss represents operating income, excluding adjustments which are outlined in the quantitative reconciliation provided above. We use Adjusted operating loss to facilitate our analysis and understanding of our business operations and believe that Adjusted operating loss is useful to investors because it provides a supplemental way to understand our underlying operating performance. Adjusted operating loss should not be considered as an alternative to operating income or any other performance measure derived in accordance with U.S. GAAP.

Adjusted operating income is calculated as follows (amounts in thousands):
 
Quarters Ended
 
December 31, 2013
 
September 30, 2013
 
December 31, 2012
 
(Unaudited)
Operating income (loss)
$
3,623

 
$
1,583

 
$
(3,412
)
Adjustments:
 

 
 

 
 

Restructuring charges
2,194

 
1,365

 
3,886

ERP integration costs
994

 
1,072

 
1,374

Plant start-up costs
485

 
1,050

 
1,524

Stock-based compensation
689

 
644

 
1,059

NEC TOKIN investment related expenses
249

 
125

 
164

Net loss on sales and disposals of assets
29

 
42

 
(196
)
Write down long-lived assets
3,358

 
—

 
3,084

Settlement gain on benefit plan
—

 
—

 
588

Adjusted operating income
$
11,621

 
$
5,881

 
$
8,071


6



 
Adjusted Net Loss and Adjusted Net Loss Per Share
 
“Adjusted net loss” and “Adjusted net loss per share” represent net loss and net loss per share excluding adjustments which are outlined in the quantitative reconciliation provided below.  Management believes that these Non-U.S. GAAP financial measures are useful to investors because they provide a supplemental way to understand the underlying operating performance of the Company.  Management uses these Non-U.S. GAAP financial measures to evaluate operating performance.  Non-U.S. GAAP financial measures should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with U.S. GAAP.

The following table provides reconciliation from U.S. GAAP net loss to Non-U.S. GAAP adjusted net loss:

U.S. GAAP to Non- U.S. GAAP Reconciliation
 
Quarters Ended
 
December 31, 2013
 
September 30, 2013
 
December 31, 2012
 
(Unaudited, Amounts in thousands, except per share data)
U.S. GAAP
 

 
 

 
 

Net sales
$
207,339

 
$
208,449

 
$
197,698

Loss from continuing operations
(4,746
)
 
(11,947
)
 
(12,575
)
Loss from discontinued operations
(1,076
)
 
(1,151
)
 
(1,682
)
Net loss
$
(5,822
)
 
$
(13,098
)
 
$
(14,257
)
Net loss per basic and diluted share
$
(0.13
)
 
$
(0.29
)
 
$
(0.32
)
Non-U.S. GAAP
 

 
 

 
 

Loss from continuing operations
(4,746
)
 
(11,947
)

(12,575
)
Adjustments:
 
 
 
 
 
Restructuring charges
2,194

 
1,365

 
3,886

Equity (income) loss from NEC TOKIN
(1,657
)
 
1,243

 
—

ERP integration costs
994

 
1,072

 
1,374

Change in value of NEC TOKIN options
(1,716
)
 
383

 
—

Plant start-up costs
485

 
1,050

 
1,524

Amortization included in interest expense
858

 
945

 
1,122

Stock-based compensation expense
689

 
644

 
1,059

Net foreign exchange (gain) loss
207

 
514

 
(464
)
NEC TOKIN investment related expenses
249

 
125

 
164

Net (gain) loss on sales and disposals of assets
29

 
42

 
(196
)
Write down of long-lived assets
3,358

 
—

 
3,084

Settlement gain on benefit plan
—

 
—

 
588

Income tax effect of non-U.S. GAAP adjustments (1)
(52
)
 
(18
)
 
(228
)
Adjusted net income (loss) from continuing operations
$
892

 
$
(4,582
)
 
$
(662
)
Adjusted net income (loss) per basic share from continuing operations
$
0.02

 
$
(0.10
)
 
$
(0.01
)
Adjusted net income (loss) per diluted share from continuing operations
$
0.02

 
$
(0.10
)
 
$
(0.01
)
Weighted average shares outstanding:
 
 
 
 
 
Basic
45,120

 
45,092

 
44,918

Diluted
52,494

 
45,092

 
44,918

 

(1)         The income tax effect of the excluded items is calculated by applying the applicable jurisdictional income tax rate, considering the deferred tax valuation for each applicable jurisdiction.

7


Adjusted EBITDA
 
Adjusted EBITDA from continuing operations represents net loss from continuing operations before net interest expense, income tax expense, and depreciation and amortization expense, adjuststed to exclude certain item which are outlined in the quantitative reconciliation provided below.  We use Adjusted EBITDA from continuing operations to monitor and evaluate our operating performance and to facilitate internal and external comparisons of the historical operating performance of our business.  We present Adjusted EBITDA from continuing operations as a supplemental measure of our performance and ability to service debt.  We also present Adjusted EBITDA from continuing operations because we believe such measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.
 
We believe Adjusted EBITDA from continuing operations is an appropriate supplemental measure of debt service capacity, because cash expenditures on interest are, by definition, available to pay interest, and tax expense is inversely correlated to interest expense because tax expense goes down as deductible interest expense goes up; depreciation and amortization are non-cash charges. The other adjustments to arrive at Adjusted EBITDA from continuing operations are excluded in order to better reflect our continuing operations.
 
In evaluating Adjusted EBITDA from continuing operations, you should be aware that in the future we may incur expenses similar to the adjustments noted below.  Our presentation of Adjusted EBITDA from continuing operations should not be construed as an inference that our future results will be unaffected by these types of adjustments.  Adjusted EBITDA from continuing operations is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.
 
Our Adjusted EBITDA from continuing operations measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP.  Some of these limitations are:

•
it does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
•
it does not reflect changes in, or cash requirements for, our working capital needs;
•
it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and our Adjusted EBITDA from continuing operations measure does not reflect any cash requirements for such replacements;
•
it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
•
it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;
•
it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and
•
other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA from continuing operations should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations.  You should compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA from continuing operations only supplementally.
 

8


The following table provides a reconciliation from U.S. GAAP net loss from continuing operations to Adjusted EBITDA from continuing operations (amounts in thousands):
 
 
Quarters Ended
 
December 31, 2013
 
September 30,
2013
 
December 31, 2012
U.S. GAAP
 (Unaudited)
Loss from continuing operations
$
(4,746
)
 
$
(11,947
)
 
$
(12,575
)
Interest expense, net
10,342

 
9,897

 
10,193

Income tax expense
1,033

 
1,444

 
611

Depreciation and amortization
11,762

 
11,952

 
10,405

EBITDA from continuing operations
18,391

 
11,346


8,634

Excluding the following items (Non-U.S. GAAP):
 

 
 

 
 

Restructuring charges
2,194

 
1,365

 
3,886

Equity (income) loss from NEC TOKIN
(1,657
)
 
1,243

 
—

ERP integration costs
994

 
1,072

 
1,374

Change in value of NEC TOKIN options
(1,716
)
 
383

 
—

Plant start-up costs
485

 
1,050

 
1,524

Stock-based compensation expense
689

 
644

 
1,059

Net foreign exchange (gain) loss
207

 
514

 
(464
)
NEC TOKIN investment related expenses
249

 
125

 
164

Net (gain) loss on sales and disposals of assets
29

 
42

 
(196
)
Write down of long-lived assets
3,358

 
—

 
3,084

Settlement gain on benefit plan
—

 
—

 
588

Adjusted EBITDA from continuing operations
$
23,223

 
$
17,784


$
19,653



9

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